The New York State Attorney Generals office has released a report called the ‘Virtual Markets Integrity Initiative’ which examined what it describes as deficits in the abilities of crypto exchanges to monitor and protect its customers from abusive and fraudulent trading behavior.
The 32 page report made specific mention of Kraken, Binance, and Gate.io for not having measures in place to detect users who were opening multiple accounts, and for being unable to detect IP addresses of users who use VPN and other basic encrypted web surfing.
Kraken notably declined to even participate in the study, and took a strong stance against it at the beginning of the inquiry back in April, according to CoinDesk.
3/"While most participating platforms reported that they monitor access by IP address, only Bitstamp and Poloniex (Circle) purported to limit VPN access," the NY State Attorney General notes, disapprovingly, in crypto exchange survey. https://t.co/eGAgHM0ZEK— Wrexler (@Wrexler_518) September 18, 2018
Kraken’s CEO, along with others in the crypto space, maintain that indeed crypto scams and market manipulation are rampant in crypto trading, but they ideologically oppose regulatory oversight, and believe their customers feel the same. Kraken, and others who view crypto in a similar vein, would mantain that market choice would ensure that exchanges meet the demands of their customers, and likely believe that government supervision goes against the spirit of crypto.
Nonetheless, the office of the Attorney General maintains that legitimate market platforms offer safeguards to secure investor funds and protect customers against manipulation. The office issues what they call a BitLicense, a kind of banking license for crypto exchanges who meet their criteria for affording investors some amount of protection from fraud.
The report in particular highlights Gemini’s partnership with Nasdaq, the traditional stock exchange, to implement ‘sophisticated market surveillance tools’ in order to track and deter manipulation.
7/All crypto exchanges surveyed by @NewYorkStateAG try to discourage wash trading by limiting one account per customer. But this works only "if a platform can actually detect customers attempting to open multiple accounts. That requires robust on-boarding procedures," report sez— CoinDesk (@coindesk) September 18, 2018
This approach, and the approach clearly favored by the Office, are at odds with the vision that an exchange like Kraken has for the future of cryptocurrency marketplaces. Kraken resents any government oversight, and puts stock in the potential of cryptocurrency to offer an alternative to traders who wish to avoid measures such as ‘market surveillance’ controlling their behavior. Kraken went so far as to claim that customers don’t care much about market manipulation, and are in fact attracted to the unfettered exchanges that enable fraudulent behavior to flourish as a consequence.
Somebody has to say what everybody's actually thinking about the NYAG's inquiry. The placative kowtowing toward this kind of abuse sends the message that it's ok. It's not ok. It's insulting. https://t.co/sta9VuXPK1 pic.twitter.com/4Jg66bia1I— Jesse Powell (@jespow) April 18, 2018
While it is an open question what the future of crypto trading looks like, the value that the crypto space seems to put in the possibility of an approved, regulated ETF shows that at least some customers, and institutional customers with notable funds to invest at that, are very interested in the kinds of protections afforded by increased oversight and regulatory scrutiny.